Minda Industries

31 Mar

Current capacities fully utilized, need expansion to meet demand: Minda Industries

Update on Indian Equity Market:

After a blockbuster start of a 3-day week, markets traded lower to end the last day of FY21 as Nifty closed the day 154 points lower at 14,691.  Within the index, TATASTEEL (2.3%), GRASIM (2.3%), and UPL (1.9%) were few of the gainers while HDFC (-3.9%), HDFCBANK (-3.8%), and FMCG (1.0%) led the winners while FIN SERVICES (-2.0%), PVT BANK (-1.9%), and BANK (-1.7%) led the losers. 

Excerpts of an interview with Mr. Sunil Bohra, ED & Group CFO, Minda Industries Ltd (MINDAIND) with CNBC -TV18 dated 30th March 2021:

  • The board of MINDAIND has approved the company’s expansion into four-wheel lighting business and four-wheel alloy wheel businesses due to an improved market scenario and increased demand.
  • In the Bawal plant of Haryana, the current capacity of 120,000 wheels/ month will be increased to 180,000 wheels/ month. This will be a part of the brownfield expansion.
  • The second plant aiming at the production of lighting is a Greenfield expansion plan.  Both the plants are expected to commission the production in FY22E.
  • The company is already running its alloy wheel business beyond its current capacity. The company is making sure that surplus capacity is available considering the additional orders received by the company. The aftermarket sales are having a positive momentum further creating demand for the alloy wheel segment.
  • Current sales in the lighting business are around Rs 4bn odd a year. The new orders received by the company are for more than Rs 2bn a year leading to the creation of a new plant.
  • The financing for both projects will be from internal accruals. The company might need a little bit of debt depending upon the funding requirement.

Asset Multiplier Comments:

  • The decision to expand the lighting and alloy business paints a healthy picture about the order book of the company for at least the next 24 months. The Company is expected to witness above-average growth due to pent-up orders.
  • The company is currently running the business at full capacity utilization. As a result, the growth in fundamentals till the commissioning of the new plant might not represent the true state of demand for the company.

Consensus Estimates (Source: market screener website):

  • The closing price of MINDAIND was ₹ 540/- as of 31-March-2021.  It traded at 94x/ 41x/ 29x the consensus EPS estimate of ₹ 5.8/ 13.5/ 18.9 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 535/- which trades at 28x the EPS estimate for FY23E of ₹ 18.9/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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18 Mar

Reorganization of verticals will help the company reduce costs: Minda Industries

Update on Indian Equity Market:

Markets continued to feel the pressure of rising bond yields as Nifty fell 163 points to 14,558.  Within the index, ITC (4.0%), BAJAJAUTO (2.9%) and HINDALCO (1.9%) were few of the gainers while HCL TECH (-3.5%), INFY (-3.3%) and DIVISLAB (-3.0%) led the losers. Among the sectoral indices, only FMCG (0.1%), and METAL (0.04%) managed to close in green while IT (-3.1%), PHARMA (-2.3%) and PSU BANK (-2.0%) led the losers.

Excerpts of an interview with Mr. Sunil Bohra, ED & Group CFO, Minda Industries (MINDAIND) with CNBC -TV18 dated 17th March 2021:

  • Minda Industries has re-aligned its business verticals as the auto ancillary company is focusing on the centralization of operations of the company. The centralization theme will help cross-sale of products in the export market.
  • The company plans to have an increased focus on exports. Towards that goal, the company has set up a dedicated marketing office in Japan.
  • The objective of this move was to keep the fixed costs at the same level while increasing the sales. The company wanted to get synergies of scale to improve margins. The second objective was, some of the functions like marketing, commercial, were not reaping benefits of scale due to de-centralization.
  • The company now will have the ability to negotiate better prices with vendors. The company is confident of positive operating leverage at play in the medium term. This along with improved revenues will yield benefits for the company.

Asset Multiplier Comments:

  • The aim for the restructuring of an organization is a long-term process. If executed as per expectation, the company may see increased growth rates in revenues over a few years.
  • The objective of centralization is to keep fixed costs at similar levels to benefit from positive operating leverage. The company may witness improvement in profitability margins as a result of this move. 

Consensus Estimates (Source: market screener):

  • The closing price of MINDAIND was ₹ 551/- as of 18-March-2021.  It traded at 95x/ 41x/ 29x the consensus EPS estimate of ₹ 5.8/ 13.5/ 18.9 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 535/- which trades at 28x the EPS estimate for FY23E of ₹ 18.9/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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19 Oct

Auto component makers see MoM improvement in demand

Update on the Indian Equity Market:
On Friday, Nifty ended 0.7% higher at 11,762. The top gainers for Nifty 50 were JSW Steel (+6.7%), Tata Steel (+5.4%), and BPCL (+4.4%) while the losing stocks for the day UPL (-7.7%), HCL Tech (-3.5%), and M&M (-1.8%). Top gaining sectors were Metal (+4.0%), Realty (+2.6%) and Pvt Bank (+2.1%) while losing sectors were IT (-0.1%) and Media (-0.4%).

Edited excerpts of an interview with Mr Sunil Bohra, ED & Group CFO, Minda Industries, and Mr Jayant Davar, Co-Chairman and Managing Director, Sandhar Technologies; dated 15th October 2020 from Economic Times:

According to Mr Bohra, the auto component industry has been witnessing a month-on-month improvement in demand, and going forward, the sustenance of the demand hinges on how the scenario plays out during and after the festive season.

Mr Bohra added that October 2020 auto volumes are expected to be better than September 2020. OEMs are positive on medium-term demand forecasts. Personal mobility is driving the auto demand in the last few months.
Mr Bohra said that it is difficult to predict how demand would play out over the next two to three quarters.

Mr Davar, on the other hand, gave an optimistic commentary, stating that he is confident of a sustained recovery in demand. According to him, the demand will stay for a longer time. There is a sense of apprehension but all the indicators point towards a sustained recovery.

According to Mr Davar, October 2020 could potentially be a historic month of the industry. Although at the same time, he did admit that it will take some time for Covid-led damage during 1Q to be wiped out. FY22E will see an improvement in margins for the industry considering the market sustains and the demand sees a rise.

Mr Bohra commented that the cash position of the auto ancillary players is stable. There is no cash crunch witnessed. Minda Industries is in a very comfortable position in terms of the balance sheet.

Mr Bohra and Mr Davar offered slightly differing stances on how the demand trajectory could shape up in the future, both seemed to share a similar view on the localisation of components. The companies have been focusing on and investing in localisation of products for 3 decades. Companies are working on reducing the dependence on China for different parts/ materials. The Companies are trying to diversify their supply chain geographically and be prepared for the worst going ahead.

When asked about the government’s push on AtmaNirbhar Bharat and sourcing locally, the management of Minda, as well as Sandhar, welcomed the step, lauding the coming together of OEMs, suppliers and policymakers for the first time.
Mr Bohra also reiterated that the component maker has been consistently working towards increasing localisation and they are on a constant lookout for alternate (local) sourcing strategies, with strong support from the OEM clients as an added boost.

Mr Davar also brought to light the limitations of the industry in terms of the economies of scale and the fact that substitution of import would require the entire system to pay more.

Consensus Estimate: (Source: market screener website)
The closing price of Minda Industries Ltd was ₹ 327/- as of 16-October-2020. It traded at 97.6x/ 29.7x/20.2x the consensus EPS estimate of ₹ 3.4/11.0/16.2 for FY21E/ FY22E/ FY23E respectively. The consensus target price of ₹ 361/- implies a PE multiple of 22.3x on FY23E EPS of ₹ 16.2/-.

The closing price of Sandhar Technologies Ltd was ₹ 240/- as of 16-October-2020. It traded at 47.1x/22.4x/16.1x the consensus EPS estimate of ₹ 5.1/10.7/14.9 for FY21E/ FY22E/ FY23E respectively. The consensus target price of ₹ 279.5/- implies a PE multiple of 18.7x on FY23E EPS of ₹ 14.9/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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